Following years of problems which began in 2009 with the commencement of the European debt crisis, the residential retail market has seen improvement in the last few months. This is set to continue, and improve further, with the announcement, on 4 September 2014, of the 0.1% reduction in the European Central Bank (ECB) benchmark interest rate.

The reduction of the interest rate to 0.5% seems set to boost the number of property loans across countries including those that experienced some of the worst financial problems such as Spain and Greece. The Spanish capital Barcelona was already experiencing growth after appearing to hit rock bottom in 2013. Foreign investors have been keen to acquire property in the city as a second home or a vacation let.

What is the ECB benchmark rate and how does it affect the market?

The rate set by the ECB controls how much banks throughout the continent pay to borrow money from the institution. A reduction in the rate means that they pay less; this in turn means that they charge less to provide loans for their customers. Lower costs to borrow mean increased provision and the improvement of the buying rate in the residential real estate market. This is particularly important in those countries which experienced the greatest finical difficulties during the crisis as it allows for the increase of foreign investment and the resulting improvement in the economy.

How does this affect potential buyers?

Whether you need a loan to purchase on the European market, or you’re a cash purchaser, you’re going to benefit from the improved fluidity. If you’re a applying for a loan you’re obviously going to feel the benefit of any reduction in interest rates. If you’re a cash buyer your property value is going to increase as the market continues to recover.

Where is it a good idea to invest?

There are certain cities, such as London, which escaped a lot of the major declines in the housing market. Property there is still expensive so investment will not always bring the best returns. In some of the rising markets, especially outside of the capital cities, there is a great opportunity to invest now and see the investment increase in value as the European market continues to recover.

Before making an investment it’s important to get as much information, on the area you’re considering, as possible. What are the population trends for the area; what are the rental returns if you’re looking to invest to let? Ideally it’s good to visit the area and get an idea of the local flavour and any possible issues you may encounter. Its fine dealing with professionals such as attorneys and real estate agents bit you’ll get a lot of useful information from the local community. For instance a fairly rural area which hasn’t seen much growth in population or economy may be about to pop with the building of a new retail site.

One thing is certain, the ECB interest rate reduction looks set to be of help for potential real estate investors.